Accounting Transaction

Meaning

Accounting transaction is based on accounting equation.

Accounting equation is based on the dual concept of accounting, means every debit must have a corresponding credit and every credit must have a debit.

Equation

Assets= Liabilities + CapitalCapital =Assets - Liabilities Liabilities= Assets – CapitalAssets = Total Equity

Examples

Bhavi started his business with capital of Rs. 100000.

Bhavi purchased furniture for cash Rs. 10000.

Bhavi purchased an assets of Rs.20000 on credit from M/S Radhey shyam of culcutta.

Cash Rs. 5000 paid to Radhey shyam.

Double Entry System

“Each transaction involving money or money’s worth has twofold aspects, the receiving of a value on the one hand and the giving of the same value on the other hand. This twofold nature in all transactions must be recorded in the books, and this gives rise to the term double entry system.” Munro and Palmer

Classification of Accounts

Transactions relating to persons.Transactions relating to property and

assets.Transactions relating to expenses and

income.

Characteristics of Double Entry system

Each Transaction Affects Two accounts.Recording of both Aspects.Recording the transaction on the basis of

specified Rules.Preparation of trial balance.

Types of Accounts

Personal accountsNatural personal accountsArtificial personal accountsRepresentative personal accounts

Impersonal AccountsReal accounts

Tangible real accounts Intangible real accounts

Nominal accounts

Rules of the Double Entry System

Personal accountDebit the receiver and credit the giver

Real accountDebit what comes in and Credit. what goes

outNominal account

Debit all expenses and losses and credit all income and gains

Advantages Double entry system

Complete and scientific recordsArithmetical check of accountsTo meet legal requirementsHelpful in comparisonHelpful in preparing final accounts.Efficient management control system.

Journal

Journal is a book of original or prime entry. In this book, transactions are recorded in the order which they happen i.e. in the chronological order.

Definition: “ A journal is a book, used to record , classify or

sort out transactions in a convenient from to record their subsequent entry in ledger.” cropper

Some examples

Started business with Rs. 10000, paid into the bank Rs 5000.

Bought furniture for Rs 900 Purchased goods from mohan and co. for Rs 4000 for

cash. Sold goods for Rs. 1700. Paid telephone rent for the year Rs 400 Purchases goods for Rs. 1000 from bit & co. Bought typewriter for Rs 750 from universal typewriter

co. on credit Goods purchased and payment made by bank Rs 5000 Salary paid Rs 600 Payment made to bit and co. by bank.

Discount

Trade DiscountCash Discount

ReturnPurchases returnSales return

Example

X started business with cash Rs 20000 Deposited into bank Rs 15000 Bought goods from K and co. Rs 13000 Paid rent for the month Rs 1250 Cash sales Rs 2500 Paid K and co. on account Rs. 12900, discount Rs 100. Sold goods to B. Rs 4000 Paid salaries Rs 5000. Paid Rent Rs 100, salary Rs. 200 and Drawings for

private use Rs 300

Example

Bhavya started his business with the following assets and liabilities 2005.

Jan 1 cash in hand Rs 20000 Stock in hand Rs 25000 Debtors Khanna Bros Rs 20000 Nirman & co. Rs 15000Creditors kripal bros Rs 10000Mitra Sen & co. Rs 5000

Jan 2 sold goods to Mr. karmakar subject to a trade discount of 10% Rs. 10000

Jan 4 Received from Nirman & co in full settlement Rs 14500

Cont….

Jan 8 Settled M & co.’s account deducting 5% for cash discount Rs 5000

Jan 10 purchased stationery articles Rs 100. Jan 12 paid rent for the month Rs 200 Jan 13 bought goods from S. K. and co. Rs

30000. Jan 16 paid kripal bros. in full Settlement of

Account Rs 9500 Withdrew cash for personal expenses Rs 500

CharityBad debts

Goods worth Rs 5000 given as charity Received a first and final dividend of 60 paisa

in a rupee from the official receiver of Mr. Rajesh, who owed in Rs 10000

Bought from Raman and co. goods worth Rs 50000 at 10% trade discount and 2% cash discount terms and paid them half the amount in cash

Supplied goods costing Rs 1000 to Mohan issued invoice at 20% above cost less 5% trade discount

Test x started his business with the following assets and liabilities 2005. Jan 1 cash in hand Rs 25000

Stock in hand Rs 20000 Debtors Khanna Bros Rs 15000 Nirman & co. Rs 25000 Creditors kripal bros Rs 10000 M & co. Rs 5000

Jan 2 sold goods to Mr. karmakar subject to a trade discount of 10% Rs. 10000

Jan 4 Received from Nirman & co in full settlement Rs 24500 Jan 8 Settled M & co.’s account deducting 5% for cash discount Rs 5000 Jan 10 purchased stationery articles Rs 100. Jan 12 paid rent for the month Rs 200 Jan 13 bought goods from S. K. and co. Rs 30000. Jan 14 Received a first and final dividend of 60 paisa in a rupee from the

official receiver of Mr. karmakar Jan 16 paid kripal bros. in full Settlement of Account Rs 9500 Jan17 Withdrew goods for personal use Rs 500 Jan 18 Bought from Raman and co. goods worth Rs 50000 at 10% trade

discount and 2% cash discount terms and paid them half the amount in cash

Bad Debts Cash a/c Dr. Bad Debts A/c Dr

To Debtors a/c

Bad debts recovered Cash a/c Dr

To bad debts recovered

Loss by fire theft Loss by fire/ theft a/c Dr.

To purchases a/c

In case goods were insured Loss by fire a/c Dr.

To purchases a/c Insurance co. a/c Dr.

To loss by fire/ theft a/c Bank a/c Dr. Profit and Loss a/c Dr

To Insurance co. a/c

Depreciation on assets Depreciation a/c Dr.

To assets a/c

Sales tax Cash/ debtors a/c Dr

To sales a/c To sales tax a/c

Sales tax a/c Dr. To cash/ bank a/c

When VAT is paid at the time of purchases Purchases a/c Dr VAT paid a/c Dr

To Cash/Bank/ creditors When VAT is collected at the time of sale

Cash /bank/ debtors a/c Dr To Sales a/c To Vat collected a/c

When VAT is paid to the government VAT collected a/c Dr

To VAT Paid a/c VAT Collected A/c Dr

To Cash/ bank

Received cash from Ram for a bad debts written off last year Rs 100.

Bought goods at the list price of Rs 25000 from mohan less 20% trade discount and 5% cash discount and 40% by cheque.

Goods uninsured worth Rs 3000 were destroyed by fire

Goods damaged by fire Rs 1000 and insurance co. accepted claim of Rs 800.

Paid landlord Rs 1500 for rent. One third of the premises is occupied by the proprietor for his own residence.

Sold goods costing Rs 40000 to mohan at a profit of 20% on sales less 20% trade discount and charged 8% sales Tax and paid cartage Rs 200 (to be charged from the customer).

Purchased goods from rahul Rs 25000 less trade discount of 20% plus VAT

Ledger

A ledger may be defined as a book or register which contains ,in a summarized and classified form, a permanent record of all transactions.”

The ledger is called the principal book.

Sudhir commenced business with cash Rs. 100000

Bought furniture from Raj furniture house Rs 5000

Purchased goods for cash Rs 10000 Purchased goods from marathi and co. for Rs

15000, trade discount 10%. Opened a bank account by deposited Rs

15000 Sold goods for cash rs 20000

Purchased stationery from R. K. mart rs 500 Sold goods to zakir Khan Rs 13000 Goods returned by zakir khan Rs 3000 Payment to marathi and co. by cheque Rs 5000 Goods purchased on credit from khosla and co.

rs 10000 Goods returned to khosla and co. Rs 2000 Paid electricity bill 200 Cash sales Rs 10000 Withdraw Rs 2000 for private use from bank

The following balances were extracted from the books of shri S. Pal on 31st march 2009. you are required to prepare a trial balance. The amount required to balance should be entered as capital.

Purchases Rs. 170000Stock (april 1 2008) Rs 24000Sales Rs 105000

Sundry debtors Rs 23800 Discount received Rs 3500 Carriage outward Rs 700 Cash in hand Rs 3500 Machinery Rs 124500 Provision for dep. Rs 24200 Drawings Rs 7700 Return inward Rs 3500 Premises Rs 528000 Sundry creditors Rs 16100 Discount allowed Rs 2800 Carriage inwards Rs 1400 Cash at bank Rs 17500

General expenses Rs 2100Bad debts Rs 2450Provision for doubtful debts Rs 2380

A book keeper extracted the following trial balance as on march 31st 2009.

Head of account Dr Cr Furniture 20000 - Capital - 200000 Debtors 200000 - Stock 1 april 2008 104000 - Creditors - 80000 Trade expenses 50000 - Sales - 858000 Wages 30000 -

Stock 98000 -Machinery - 50000Purchases 625000 -Wife’s loan 50000 -Discount allowed - 4000Drawings - 45000Motor van 60000 -